Dictionary
Debitoor's accounting dictionary
Creditors’ voluntary liquidation (CVL)

What is creditors’ voluntary liquidation (CVL)?

Creditors’ voluntary liquidation (CVL) is the formal process of closing down a company that is insolvent (unable to pay its debts).

There are many different ways you can close your company, whether it is solvent or in financial trouble. Read more about how to close a limited company.

The CVL process is for the voluntary closure of insolvent companies. If your company is solvent (able to pay its debts), then you will need to pursue the process of members’ voluntary liquidation or dissolution.

Eligibility for creditors’ voluntary liquidation

CVL is one of the most common forms of liquidation in the UK. Because there are several different ways to close a company, you will need to ensure that your business is eligible for CVL.

To close a company through CVL, the business must be:

  • Insolvent
  • Unable to pay its creditors
  • The majority of shareholders agree to liquidate

If any of the above criteria do not apply, then there are other ways to close a limited company.

Benefits of creditors’ voluntary liquidation

If a business is insolvent, it might be better to wind-up the business if there is no possibility of being profitable in the future. Some benefits of creditors voluntary liquidation include:

  • Debts can be written off
  • Allows directors to personally select an insolvency practitioner
  • Ends worrying about the business’ debts
  • Allows employees to claim redundancy pay from the government
  • Ends any further legal action

An insolvency practitioner can advise you of the benefits personalised to your business situation.

Creditors’ voluntary liquidation process

CVL occurs when a director of a business realises that the business is unable to repay its debts. The process of liquidation occurs after at least 75% of the shareholders agree to liquidate the company.

Below, you’ll find step-by-step instructions on the process of creditors’ voluntary liquidation.

Find an insolvency practitioner

An insolvency practitioner is a licenced individual who assists businesses with the liquidation process. Their duties include advising directors, negotiating with creditors, and arranging for the distribution of assets among creditors and shareholders.

It is important to find a licenced insolvency practitioner rather than an advisor. You can find a list of qualified insolvency practitioners on the UK Government website.

Hold a meeting with shareholders

In order to start the liquidation process, at least 75% of the company’s shareholders must vote to liquidate the company. You must call the meeting with 14 days’ notice.

Within the 14 days prior to the shareholders meeting, the proposed insolvency practitioner will contact the company’s creditors to inform them of the intention to liquidate. They will also provide further information about the process and the business’s financial situation.

Inform Companies House & post in The Gazette

If a resolution has been passed by the shareholders, then the insolvency practitioner will submit the signed resolution to Companies House within 15 days of the meeting to inform them of the closure.

Within that time, the practitioner will also advertise the liquidation in your local Gazette.

The insolvency practitioner will handle the liquidation

Once Companies House and the Gazette have been informed, your insolvency practitioner will start the formal liquidation process. They will investigate the overall financial situation and carefully review the company’s accounts.

The IP will then evaluate and disperse the company’s assets to creditors according to the Insolvency Act 1986. The practitioner will also handle any outstanding company matters.

Once completed, the business will be stricken off the register by Companies House, and any remaining debts will be written off.

What is the difference between CVL and MVL?

The main difference between creditors’ voluntary liquidation and members’ voluntary liquidation is that CVL is the liquidation process for insolvent companies, whereas MVL is the liquidation process for solvent companies.

Both follow a similar process by appointing an insolvency practitioner and holding a shareholders meeting.

However, the role of the insolvency practitioner may vary due to the fact that insolvent companies will not be able to fully repay their creditors. Therefore, it is unlikely that the shareholders will receive any remaining funds.

However, with MVL, the insolvency practitioner will distribute assets among the creditors, and any remaining funds will then be distributed to the shareholders in accordance with UK law.

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